Are the rich in Oregon paying enough taxes?

State spending in Oregon doubled in ten years, growing from $30 billion to $60 billion. The Oregon All Funds budget doubled from the budget ending in 2001 to the budget ending in 2011. The state’s General and Lottery Funds’ budget, a subset of the All Funds budget, went up by 35% during that same time.

In the current budget cycle, state spending and taxes have generally been held in check. In the coming legislative session, though, there will be significant pressures to increase taxes to pay for PERS increases, to pay for Governor Kitzhaber’s expansion of government-run health care and to restore funding to schools. I’ve written previously explaining why additional taxes won’t solve these problems – it will take fixing PERS and funding schools first to start with (Three articles calling for a state budget “Core Fund” & 3-part series on Oregon PERS Crisis 101). Astonishingly though, not everyone has read my articles or agrees with them, and so there will be those in Salem who pursue additional taxes.

More taxes are never popular, and so a common method of selling additional taxes is to have them be paid for by someone else. In cases like Oregon’s Measure 66, that someone else was “the rich.” More recently, in the campaign cycle that just ended, the airwaves and mailers were full of accusations of “tax breaks for the rich,” which shows that “the rich” not paying enough taxes must be a focus group-tested concept that sells.

Another problem with taxing “the rich” is that many of the high-income earners are actually small businesses who create jobs. According to a 2011 IRS study, high-income earners make up 24% of all small businesses that have employees. Here in Oregon, state reports showed that 2/3 of the tax filers targeted for the Measure 66 personal income tax increase were small and family-owned businesses or farms. Increasing taxes on these small business owners reduces the amount of capital they have available to grow their businesses and hire more employees.

Is it “fair” to further increase taxes on high income earners, “the rich”? I don’t think anyone actually believes that it is. What comes first is the perceived need for more taxes, and then the justifications follow.

Politicians have learned that when the numbers line up – where the many can vote more taxes for the few – it’s possible to pass these envy taxes. That doesn’t mean that they work, or that they’re right.